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5 things to consider before Investing In Cryptocurrency

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If you are reading this, you have probably been caught up with the excitement going round about cryptocurrencies and you are ready to take that first step to financial freedom. It doesn’t matter your investment style, but it would be disastrous if you are part of the larger crowd who don’t want to miss out on the next wave of a mega rally headed to the moon.

The prospects and thought of walking out with a fat account following a 1000X increment is the main allure. It’s the raw force driving both technical and non-technical investors. Many of us may be interested in cryptocurrencies but we have no clue on what to do when getting started and what they should actually consider before pouring all their retirement saving onto an asset they don’t fully understand.

Before we delve in deeper, we first need to understand what a cryptocurrency is?

Cryptocurrency is a virtual asset made to work as a form of exchange and uses cryptography for security purposes. From the way it is structured, most coins are independent from government interference and this is why most governments are against the proliferation of coins.

There are many kinds of cryptocurrencies: Bitcoins, ZCash, Bitcoin Cash, Dash, Ether and many more.

What you should understand is this:  There are at least a dozen cryptocurrency markets but the good thing is that each market has their own unique value drivers and players. Different cryptocurrencies compete for different markets just like the stock market has technology stocks and utility stocks.

Before investing, consider the following factors:

What should I consider?

  1. Is owning cryptocurrencies legal in your jurisdiction

Alright, the thing is cryptocurrencies are global and this what makes them attractive. Regardless, their growth and mass adoption is facing stiff resistance from some governments through their respective central banks and regulatory arms.

So you know, cryptocurrencies is powered by blockchain technology and while the technology is revolutionary, its decentralized and anonymous nature makes its hard for it to be regulated. Besides, they are issued from within the network and not from a central entity like Fiat. This is what most central bankers are concerned about.

Many say such a system will be a threat to their fiat calibrated economy and they outright bar settlement of goods or services with any other currency besides what their central bank issue. Many countries have followed this path with Indonesia leading the way. However, some countries like Japan and the US are open and have favourable legislation promoting cryptocurrencies.

  1. Learn about the inner working of the coin. Read their white paper

The knowledge most people have on cryptocurrency is based on hearsay and honestly, this should not be enough to invest your money in it. Often, when buddies and grandma-people who might not even know the underlying technology start talking about a particular asset, it’s time to sell that asset. The Greater fool Theory is often at its peak.

Anyhow, rather than ignorance prevailing, nowadays getting information is just one button away. These are some of the things you need to look out for:

  • How the currency works
  • The business model of that cryptocurrency
  • The potential of the team
  • The things that drive value for that cryptocurrency
  • Market volatility etc.

Many people are looking for easy money so be aware of scams and be sure to read the coin’s white paper and make informed choices before investing.

  1. Check the coin’s market capitalization

Gauging the coins market cap is a sure way of knowing investors interest in that particular coin. Similar to share markets, the coin’s market capitalization can be a filter in determining price and potential capital gains or losses. However, using market cap is not a sure way of knowing the full value of a token. Tron is one example where use of market cap can be misleading for investors.  Judging from recent developments, it is now quickly turning out to be one of those “pump and dump” schemes that can wipe out your account.

Like everything else, it is better to invest in a currency with a high market capitalization. Most of the time market cap reflects the public and community trust of the coin. The higher the market cap, the higher the liquidity and the cheaper it is for you to buy coins.

  1. What’s your risk factor: Risk off or Risk Averse

Cryptocurrencies are considered high risk , such investments can give you cold feet or make you very excited .it is said where there is high risk there are high returns so one may be tempted to go shift all of their life saving to one baskets. Yes, sometimes volatility can be a cause of magnanimous profits but like leverage, it can be a double edge sword that can slash your earning in a blink of an eye. Time and time again, we have seen mini-flashes like what happened to Ether prices in Q2 2017 or even the most recent reaction of BTC prices to China and South Korea ban of ICO. The thing is, you can reap big but you can lose them all and as such, if you prefer stability than sprints, we recommend settling for other stable asset classes like Gold.

 

  1. Are you in for the short or long term?

Often, investing is a long time deal and while the general cryptocurrency world is just at its nascent age, the same principle applies. Digital assets like Bitcoin have a deflationary element in that they have a fixed supply in their millions, 21M to be precise. Others like Ripple or NEM tokens are in their billions. Price and token supply have a direct relationship influenced by the general supply demand dynamics and it is recommended that tokens like XRP, IOTA or NEM should be held as long term investment. Other’s like BTC or Monero whose tokens are within their millions should be held for capital gains in the short to medium term.

 

Conclusion

Finally every investment is a risk and each has its pros and cons .Some of them have more risks than the other, it is now up to you to choose what suits your investment style based on the above criteria. You are never too late to join the cryptocurrency world, it is just the beginning and before a certain coin dominate a niche, make sure you were an early adopter.

 

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